Government meddling hurts first time buyers

Peter Simpson is the former president and CEO of the Greater Vancouver Home Builders Association and he’s got a column in the Vancouver Sun that strings together some numbers and anecdotes and then blames the federal government for hurting affordability.

Since this column is about first-time homebuyers, I must comment on federal Finance Minister Jim Flaherty’s changes to the rules governing federally insured residential mortgages, including a reduction in the maximum amortization period from 30 to 25 years.

It is not clear that a tightening of mortgage rules helped Canadians to manage their debt. What is clear is that the shorter amortization period has reduced housing demand by eroding affordability.

Now of course this ‘reduction’ in the maximum amortization period is actually just a reset to a historical norm, not to mention that it only applies to government insured loans.

Mr. Simpson refers to an older generation with homes that are paid off, but I can guarantee you that those homes were not bought on a 30 year amortization, so did longer morts help or hurt affordability? Is it possible that pushing more money into the housing market simply helped to drive up prices and worsen affordability?

It may be that Mr. Simpson is not primarily concerned with the well being of the first time buyer, but is instead concerned with a reduction of customers for his industry.

His conclusion is especially telling:

Finally, Vancouver-area pundits predict there is a sales shift to moderately priced homes, and a buyers’ market will continue until mid-2013. There is no assurance interest rates will remain low through 2013. The bottom line is it seems to be a good time to consider buying a new home.

Read the full thing over at the Vancouver Sun.

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[…] CashedOut At VCI December 3rd, 2012 at 7:47 pm . Share: This entry was posted in 11. Regrets about Investing in RE and tagged Anecdotes, British […]

bullwhip29

@ Con-Rad December 4th, 2012 at 9:01 pm Yes, the correction in periphery regions has been ongoing for longer. This was to be expected. While this may mean prices in Victoria (and elsewhere) may look relatively inexpensive, I also believe that these very same regions will not stage a meaningful recovery until major markets like Vanc, Toronto etc reach escape velocity again. I think it is safe to say that we are a very long ways away from that happening. To add fuel to the fire, a change in leadership over in Victoria come the spring would not exactly be a positive thing for BC business in general. @ Vote Down The Facts December 4th, 2012 at 4:05 pm Yes, it is different there. Vanc was seen as another HK so prices were bid up to ridiculous, nose bleed levels.… Read more »

Ralph Cramdown

I stand corrected.

Con-Rad

@bullwhip29: I know enough about Vic that its price-income is about the same as Calgary’s. It is much closer to a bottom than Vancouver.

Funny, Bears cannot appreciate that the correcting has been going on for years. Low rates make it look different.

patriotz

@Ralph Cramdown:
“I live in Toronto. You can check the stats — we almost always vote Liberal, sometimes NDP. As far as the Conservatives go, we’re not in play, so we get nothing.”

The Cons won 8 seats in the City of Toronto alone, and 32 out of all 47 GTA seats.

The GTA has far more Liberal/Conservative swing seats than any other metro, which is why it is so crucial to the winner of any election.

Vote Down The Facts

@bullwhip29: “Why would Victoria be as overvalued as Vancouver in the first place? Contrary to what many narrow minded residents of Victoria might tell you, this is not an apples to apples comparison at all. ”

You mean it’s different there?

Ralph Cramdown

@patriotz: “When it becomes popular wisdom that there is a bust on in Toronto. They don’t give a rat’s ass about Vancouver and never did.”

I’m responding because of the number of up votes your comment got. I live in Toronto. You can check the stats — we almost always vote Liberal, sometimes NDP. As far as the Conservatives go, we’re not in play, so we get nothing. The Liberals take us more or less for granted, so we get nothing. The 905 is in play. I’m not saying this to whine, just to point out that, if you want to count politically, you have to be a swing riding. We aint.

bullwhip29

@ Con-Rad December 3rd, 2012 at 11:59 pm Why would Victoria be as overvalued as Vancouver in the first place? Contrary to what many narrow minded residents of Victoria might tell you, this is not an apples to apples comparison at all. While most places might look “cheap” compared to Vancouver, that alone does not make them bargains. I personally know several families who took a shot a the Victoria market in recent years thinking/hoping it might evolve into something resembling that of Gr Vanc. At the end of the day, most of them wound up being utterly disappointed after having spent enough time there to realize life on the island is much, much different. Markets on the periphery like Victoria (and elsewhere in BC) have been on the decline longer than Vanc has been for a reason. It is… Read more »

Con-Rad

@patriotz: Thanks for the clarification.

patriotz

@Con-Rad:
“Go to househunt victoria with bearpoobah patriotz and annoy some of the realtor-slime-dickweeds who post there.”

The realtor who posts regularly on HHV is actually a very good source of information. The most annoying comments are from homeowners who think they own a can’t-lose investment.

What I find most interesting about Victoria is that over-55 properties are taking the biggest price hits. So much for the theory that retirees can support inflated prices. Other markets highly dependent on retirees, i.e. up-Island and the Okanagan, are also seeing the largest declines in Canada.

Con-Rad

Victoria doesn’t look anywhere near as overvalued as Vancouver. I know Victoria doesnt like to hear that but it’s not. It’s been in a state of slow decline since 2009 when Vancouver went the opposite way. It still has a way to go but at its current rate of decline will only need 15% drop to bring things close to corrected, not fully corrected but close enough. Thats not too far away. Think about that. Victoria is only a few years away from being mostly corrected. Maybe its worth a trip to Victoria to see whuzzup there. Go to househunt victoria with bearpoobah patriotz and annoy some of the realtor-slime-dickweeds who post there. Vancouver is a different story altogether. Another reason why Flaherty wont care about Vanocuver. He can look at victoria and say see no problem BC its those… Read more »

Bag it and tag it

@Troll. Why do we need to wait a week? Market has been tanking for a year now. We’re quite aware of what we’re dealing with by now.

HAM Solo

@ airborne canine Thanks for the great update on Victoria. Here’s my take on that market. Although a few of the private sector developers must have taken a financial hit, the higher end in Victoria is still reflecting decent provincial government bureaucrat wages combined with the low interest rate environment. There’s less volume, because the people who build and sell homes are falling out of the upper bracket, but the 40-something doctors, deputy ministers etc actually have improved affordability. Therefore prices are stable for now and demand for “bargains” in Oak Bay is at least understandable. However, the action is in condos. No more ponzi money @ 100% down, and probably much worse employment income outlook for the lower end of the spectrum. And the lower end in Victoria are maybe worrying about cutbacks of contract and non-tenured provincial gov’t… Read more »

Con-Rad

Bearstar patriotz is right. flaherty doesen’t give a rats about bc. Why?

Look at it this way. Vancouver is tanking. Toronto is falling slowly. Vancouver pleads for a bailout. No way Vancouver gets it without the rest of the country wanting a piece too. Unless prices nationwide are falling beyond hope BC is on its own.

Sorry bears better luck next time.

Oh wait that’s good. Crap.

I hate you guys.

VMD

@jesse:
Jesse, if you have the time, I’d like you to be the next host of “2013 VCI Prediction Contest”.

My spreadsheet skills are somewhat rudimentary and sometimes have to resort to manual work (yes, complete with my ~15 year-old scientific calculator from first year calculus). I’m seeing a much larger pool of participants for the 2013 contest and I don’t think I can handle it.

Feel free to modify the predicted stats categories (eg teranet hpi?interest rate changes?) and scoring rules!

Yalie

@Anonymous:
Fair enough, I stand corrected. But I would add to Patriotz point (and yours) that prices will likely lag behind policy for quite a while – i.e. just because credit is as tight as it’s going to get doesn’t mean prices have stopped falling.

Anonymous

@Yalie: I did not say it was a good time to buy. It isn’t. I just explained that there is absolutely no contradiction in saying that it is hard to buy, but a good time to buy nonetheless. The very same point as made by patriotz at #64.

So, if I’m Cameron, then maybe patriotz is Helmut?

jesse

@604x: I don’t know if I ever predicted demographic shifts contributing to weak prices/sales. I did state lower pop growth in 2011 in one of several plausible reasons for slower sales (and eventual price weakness) in 2012. Given 2012’s figures to date I expect similar weakness into 2013, all else equal.

I also predicted 1700 sales for November. My prediction for December is 1176+/-34. This is based only on looking at past years’ trends.

On that note it’s time to start firing up the 2013 prediction engines. What do people think 2013 is going to bring? I have some ideas but I’m sure more than a few people here can chime in with some good arguments.

VMD

@Troll: agreed that today’s sales/listing numbers look similar to Dec 1, 2011, and also agreed that we need to wait a few more days to draw a more accurate YoY comparisons. Just a few points: – on Dec 2, 2011, there were 134 sales/ 104 list. The first 5 business days of Dec 2011 saw S/L ratio of 83% – Dec 2011 had 21 business days, with Dec 24-26 landing on Sat-Sun-Mon. – Dec 2012 has 19 business days, with Dec 24-26 falling on Mon-Tues-Wed. – TI on first day of Dec 2011: 14182 – TI on first day of Dec 2012: 15974 (+13%) – My guess is Dec 2012 sales -30% YoY, -30% MoM (Nov 2012 sales = Dec 2011 sales) – 2013 January is projected to have +13% TI vs Jan 2012, +35% TI vs Jan 2011, +39%… Read more »

mac

@vangrl: Thanks, Vangirl.

604 Receding Gains

:

Bravo! You predicted this a long time ago:

Per GVREB press release: “With slow sales and high inventory, lower prices are now being set by the motivated and aging owners who desire or require their property to sell. These unlevered sellers are willing to accept very large discounts below their asking price in order to realize the large gains they have realized over their original purchase price. We believe this the front edge of a demographic trend that economists have predicted would occur. “

CashedOut

First off, LOL at Peter Simpson’s conclusion to his article… way to stay on message. Second of all, seller in Burnaby North, like many markets are busy chasing the market down, with very few getting out in front of the declines. I’m fortunate to have access to MLS, and I’m seeing many listings that were priced >$1M as late as August now well in to the $800k range. This one, V972997, a foreclosure, is particulary extreme: original list $1.8M in Dec 2011, now listed at a fire sale price of 900k. A couple decent houses (V967123, V981232) in Brentwood Park area just sold for <725k. V967123 was originally listed for 988k in May! The sales caused cries of disbelief and anger from my close family who recently bought a house down the street for almost $1M in June. Their lot/house… Read more »

Troll

@VHB: Dec. 1st is almost identical to 2011. Better to wait for a week before getting too excited bears.

New Listings 146

Price Changes 50

Sold Listings 65

TI:14182

http://www.laurenandpaul.ca

crashcow

20K Inventory – April!

vangrl

“Note that Paulb took a break in December 2010 after Dec 14th, but still…”

omg has Paulb been posting stats for us every day for 2 years? i hope you guys have shown him the love, at least “liked” his facebook page??